Ernst & Young Insights: Defying gravity – how entrepreneurs manage to fly in a slow-growth economy

Entrepreneurs defy the macroeconomic factors that other companies find so challenging — but how do they do it?

In honour of tonight’s 2012 Entrepreneur of the Year national gala, a new report highlights eight key findings on how entrepreneurs have been creating jobs and generating growth in a sluggish economy.

Defying gravity: high-growth entrepreneurship in a slow-growth economy, surveys more than 600 Ernst & Young 2012 U.S. Entrepreneur Of The Year finalists. Here’s what they’re doing differently:

1. Have a unique perspective on risk

A majority of the finalists, especially those who were founders, indicated they believed entrepreneurs were born, not made. This entrepreneurial DNA helps sets them apart from their more cautious counterparts and also helps to explain how entrepreneurs move forward in spite of real or perceived risks.

2. Communicate vision and instill passion in great teams

Regardless of their position in the marketplace, Entrepreneur Of The Year finalists overwhelmingly cite people as their leading priority. Successful entrepreneurs have the ability to build a strong team at all levels in their organizations. Over 25% of the entrepreneurs surveyed indicated that their ability to identify, and develop talent was their biggest strength, while more than 40% indicated that their greatest source of success was assembling the right management team. But where Entrepreneur Of The Year finalists really differentiate themselves is their ability to communicate their vision and instill their passion – this was cited as their biggest strength by more than 40%.

3. Demonstrate resilience and rapid recovery

Despite their success, entrepreneurs are not immune to business challenges. More than 30% of the finalists surveyed acknowledge having made one or more bad decisions or encountering significant difficulty in execution. So while all businesses make bad decisions from time to time, the best entrepreneurs and their teams seem to be able to set a new course and rapidly recover, and are even able to react much more nimbly than their large corporate counterparts.

4. Embrace innovation

Entrepreneurial companies have been found to be the predominant sources of radical innovations. While older and larger companies can also be sources of innovation – whether incremental or in response to the need for reinvention – all too often, more-established companies resist the radical innovation that, while beneficial from a long-term perspective, might displace their existing revenue streams in the short term.

5. Pursue what you do best

High-growth entrepreneurs also excel at focusing on the things they do best – instilling vision and passion, building great teams and innovating among them – and appropriately partner with others to carry out certain infrastructure and technology needs, administrative functions, sales channels, manufacturing and distribution, and regulatory compliance. This not only enables the high-growth company to focus on doing what it does best, but also facilitates more rapid, flexible and cost-effective scalability as the business grows. Twenty-eight percent of finalists cited a focus on performance improvement and prioritization of capital spend as keys to their success.

6. Pursue geographic expansion

The majority of finalists also included geographic expansion as part of their growth strategies. Overall, they are continuing to expand their businesses in US markets, while more than 20% of all but the smallest companies indicated they were expanding in developed global markets. Many, especially those with revenues greater than US$1b, indicated they were expanding into emerging global markets.

7. Secure the right capital at the right time

The Entrepreneur Of The Year finalists have accessed a wide range of funding sources as they have grown their businesses. Nearly half reported raising venture capital, angel investment or private equity. Roughly a third cited the use of personal funds, while another quarter had accessed bank loans. The proverbial friends and family round was used by another 16%. Few indicated they had accessed government grants — perhaps due to the risk and reward involved in paperwork and compliance, continued volatility in rules, concerns about government disclosure requirements and the length of time it takes for such grants to be completed.

8. Preserve what you’ve built

Regardless of whether they stay to lead or leave to start their next venture, successful entrepreneurs look to preserve those company qualities and culture (52%) that allowed them to attract their high-performance teams (44%), establish their brand and reputation (38%), develop loyal customers (30%), and buoy enterprise shareholder value overall.

Role models

It may not feel like it everywhere across the country, but compared to elsewhere in the world, Canada has a very bright future. To the extent that Canada has a solid foundation for economic growth and long-term strength, it is largely due to companies like those in the Ernst & Young Entrepreneur Of The Year program that exhibit the ability to succeed regardless of the challenges they might face.

These entrepreneurs represent the very best of the nation’s business heritage, those continuing to invest, innovate and grow regardless of external conditions. And while their stories are highly diverse, they collectively offer hope that the future of Canada’s economy is in the best of hands.

Ron Voyer is National Leader, Entrepreneurial Services, Tax and Pacific Director of Entrepreneur Of The Year at Ernst & Young LLP. To learn more about our report, refer to Defying gravity. Follow us on Twitter @EYCanada.